Honorable William A. Harrison

Commissioner of Insurance State Board of Insurmce International Life Building Aust~in, Texas Opinion No. WW-297 A Re: Licensing of Credit Life Insurance Agents

Dear Sir:

This office has reconsidered its Opinion WW-297 dated November 8, 1957, which former opinion iswithdrawn and overruled and the following opinion substituted in lieu thereof.

We quote from your opinion request as follows:

“Article 3.53 of the Texas Insurance Code is the credit life, health and accident insurance statute pertaining to individual or personal insurance in which the insured is a borrower ofmoney. Article 3.50is the statute pertaining to group insurance, and Section 1, paragraph (4) of the statute authorized group credit insurance to be written upon a number of persons who are debtors, and the creditor is deemed the policyholder.

“Article 21.07-1is the licensing law for legal re- serve life insurance company agents. This statute exempts from its operation ‘an agent selling credit life, health and accident insurance issued exclusively in connection with commercial loans. ’ Article 21.07is the statute which licenses agents for other types of operations than those contemplated under Article 21.07-1. As credit life insur - ante agents are exempt from the provisions of 21.07-1, it has been the practice of the State Board, of Insurance to use the provisions of Article 21.07 to license a credit life insurance agent who was selljug credit life insurance under t:hcprovisions of Article 3.53.

“WC respcclfully rcqucst your opinion as to whether a person selling group credit insurance under the provisionsHon. William A. Harrison, page 2 (WW-297 A)

of Article 3.50, Section 1(4) is exempt from Article 21.07-l; and if so, must such a person be licensed under the provisions of Article 21.071” Article 3.50, Section 1(4), provides for group life insurance in the form ofa policy issued to a creditor, who shall be deemed a policyholder, to insure debtors of the creditor, subject to the following requirements:

“(a) The debtors eligible for insurance under

the policy shall all be members of a group ofpersons numbering not less **than** fifty (50) at all times, who became borrowers, or purchasers of securities, merchandise or other property under agreement to repay the sum borrowed or to pay the balance of the price of the securities, merchandise or other property, purchased to the extent of their respective indebtedness, or the face amount of any loan or loan commitment,

. . ,

‘l(b) The premium for the policy shall be paid by the policyholder, either from the creditor’s funds or from charges collected from the insured debtors, or both.

“(c)
. . .

“(d) The insurance shall be payable to the policyholder, Such payment shall reduce or extiliguish the unpaid indebtedness ofthe debtor, to the extent of such payment; . . .I’ Articles 21.07 and 21.07-l of the Texas Insurance Code require the licensing of individuals acting as life insurance agents. The question presented is whether or not cruditors who utilize group life insurance under Arti~clc 3.50must obtain licenses under either one of these two statutes. You have indicated initial concern whether such creditors come withi~n the terms of the exemption contained in Article 21. 07-1, 1(b) (5) which exempts from the term “life insurance agent”:

“(5) an agent selling credit life, health and accident iusurancc issue d cxcl~usivel~y in connrction with commercial, loall,
. .”Mon. William A. Harrison, page 3 (WW-~297 A)

The above quoted’exernpt~ion in Article 21.07-l does not apply to

“group insurance” issuc.d under Article 3.50, Secti,on l(4). Reference to “credit life, health a.ndaccident insurance” as used in this exemption normally refers to the;insu~rancc written uncler Article 3.53 of the Texas Insurance Code and no: 1.0the insurance writ,ten under Article 3.50, the

“groip life insuranc,t” stat.ute. The. definition of credit life insurance and credit health and accidc,nt i.nsurance contai,ned in Article 3.53.limits that insurance to insurance solid in connection widthloans ---. Article 3.53, 1, B, (1). The requirements under Art.iclc 3.50, Section l(4), heretofore quoted in this opinion, encompass amuch broader coverage program than just lending transactions such as purchase agreements where the vendor sells the property partially on credit.

Secondly, this exemption in Articl,o 21.07-l will not apply to insurance issued und.cr Art;icle 3.50, Section l(4), for the reason that the policyhohling creditor under Articl,e 3.50 does not “sell” insurance. The “creditor” provided for in Article 3.50is sold apolicy of insurance. -- There is no sal,c of insurance by the credit,or to his debtor. He merely affords hi,s debtors the opportunity of obtaining the protection of the group insu.rance pol.icy previou,sly purchased by him.

Under Article 3.50 (4), the proceo ds of insurance are payable to the creditor and with the exception of t:ht case of a “d,ebtor with seasonal income” as therein d(::sc:r;bcd, the ;nsurance cannot: exceed the amount of the loan balance. Also, t,heresponsi.bi,li~ty for payjng the premium is upon !he creditor, :~houghho may pay the premi.um tither frown his own funds or from charges collected from the insured debtor.

Arti,cle 21.07-,l, St:c:t:ion 1, Subsection (b), provid.es as follows:

Sl~bsc~c:!o~~(a) of Sr;c:t.ion 3of this same Article provides as follows:Hon. William A. Harrison, page 4 (WW-.29’/ A)

agent within this State until he shall have procured a license as required by the laws of this St.ate. ” This language supports the proposition that the Legislature intended by thj,s Article to require a license only of those who solicit, negotiate, or procure the issuance of insurance policies, or who act as agent for the insurance company in the collection ofpremiums. A “creditor” acting in accordance with Article 3.50 l(4) does not perform these functi~ons. The policy is “sold to him;” he does not sell it, nor solicit, negotiate, or procure its sale.

We do not believe that under the terms of Article 3.50 (4) (b) any premium is “collected” by the creditor from the borrower. Rather, this section clearly indicates that the payment of the premium to the insurance company is the responsibi1jl.y of the creditor with only permission granted to pass this cost on tothe borrower if the borrower so contracts.

We therefore hold that.a “creditor” who purchases a policy of group insurance under **the** terms of Arlicle 3.50, Section l(4), does not, in actin~g pursuant to Article 3.50-l(4), become subject to the licensing provisions of Article 21.07-l.

Article 21.07-.l, first enacted in 1955, in part supplants previous Article 21.07. By the terms of Subsccl:ion (a) of Section 1of Article 21.07-2, it is provided that Article 21.07 is repealed only to the extent that it applies to the agcnt:s of legal reserve life insurance companies. Article 21.07 continues to apply t.oagents of other I.ife insurance con>- panics, but dot.s not attempt to definr the term “life insurance agent. ” Section 1of this Article provides that.when, aperson desires t.oact as an agent: for life i,nsurance compnnjes, he must make application to the Insurance Deparl.mr.nt for such alicense. Section 5of the Act provides that:

“Sec. 5. Licc!nsc-! Required as Precedent to

Transact.ing Cusincss. --.No person shall be nu,thorizcd to cngagc jn husincss as the agent of any life ins..;3ncc rornp;my . . . unt.jl he shall have procured a licc.ncc from llrr: ~oarcl of lnsurancc Cornlnissioners as herein provided,
. . .‘I.

Hon. William A. Harrison, page 5 (WVVr...297A)

the Code provides:

“It shall not be lawful for any person to act within this State, as agent or otherwise, in soliciting or receiving applications for insurance of any kind whatever, or in any manner to aid in the transaction of the business of a.nyinsurance company incorporated in this State, or out of it, without fi~rst procuring a certificate of auth0rit.y from the Board. I’ Article 21.02 of the Code is in part as follows:

“Any person who solicits imurance on behalf of any insurance company. . ., or who takes or transmits other than for himsel~f any application for insur- -... ante or any policy ofinsurance to or from such company, or who advertises or otherwise gives notice that he will receive or transmit the same, or who shall receive or deliver apolicy of insurance of any such company, . . . or receive, or collect, or transmit any premium of i,nsurance,
. . . or do or perform any other act or thing in the making or consummating ofany contract of insu,rance for or with any such insurance company other than for himself -- ,..-.-----.-..-’
. . . whether any of su.chacts shall be done at the instance or~request, or by the employment of such insurance c,ompany, . . . shall be held to be the agent of the company for which the act is done, or the risk is taken, as far as relates to all the liabili- --_ --- .-_ ties, dutyies

-..-A requirements and penalties set forth in this chapter.
. . .‘I --- --..-.- Once again (wit:11rafercnce to Article 21.Ol), the creditor in acting pursuant to Article 3.50is not a.cting as the agent of the insurance company “in sol~icit:ing or rc:cci,ving spplicati~ons for insurance” or aiding in the transacii~on of it,sbusiness. Article 21.02 excepts from the definit.ion of agent those who do t.hracts enumerated~ for themselves. Thus, by rcsconing simi,lar Tao that n~bovo, in comlcction with Article 21.07_,1) WC11”1d, Ihat.a “creditor” who purchases a policy of group insurance under the terms ofArtich: 3.50, Section l(4), does not in act~ing pursuant 1herct.o become subject t.othe licensing provisions of Article 21.07..

Hon. William A. Harrison, page 6 (WW-297 A)

scope of his activities, Section 3(b) ofArticle 21.07-l would prohibit an unlicensed “creditor” from receiving directly or indirectly any commission from the insurance company “for services as a life insurance agent. ”

We would also point out that the life insurance company may not agree, as an inducement to the writing of apolicy under Article 3.50, l(4), to pay any “commissions” to t:hc“cred,itor” as that would constitute rebates prohibited by Article 21. 21 of the Texas Insurance Code. An illegal rebate is defined by Article 21.21, 4, (8) (a) as follows:

II

. . .knowingly permitting.
. .paying or allowing, or giving or offering to pay, allow, or give, directly or indirectly, as inducement to such insurance, or annuity, any rebates ofpremiums payable on the contkact, or any special favor or advantage in the dividends or other benefits thereon, or any valuabl,e considcrati.on or inducement whatever not speci.fied j.nthe contract; II

. . . Since we have previously concluded l.hat.the creditor does not act as the a~gentof the life insurance company, he does nothing that would entitle him to a cornmj.ssion and since whatever services he performs are for his own benefits as opposed to the insu~rance company, the insurance company cannot justi,fy such payments as compensation for services rendered to it.

It should be noted that &h-paragraph (i,ii) of Paragraph (b) of Subsect.ion (8) of Section (4) of Arti.cle 21. 21exempt.s from the definition of rebates the

“(iii) readjuskment. of the rate ofpycmium for a

group insurance policy based on the loss or expense experience thereunder, at the end of the first. or any subsequent policy year of insurance thereunder, which may be made rekoactjve only for such poli.cy year. ” Previous Opinion No. WW-297 is ovcrrulcd and wilhdrawn..

Hon. William A. Harrison, page 7 (WW-297 A)

of Article 21.07-1, 1(b) (5). Such a creditor is not required to obtain a license as a life insurance agent either under Articles 21.07-l or 21.07in acting pursuant to Article 3.50 l(4). A life insurance company may not agree to pay any “commissions” to such a creditor as an inducement to the writing of such a policy of group life insurance. Very truly yours, WILL WILSON Attorney General of Texas

BY 

# KC~ &kc(f(~ \, J h@-d&k Morgan Nesbitt Executive Assistant
By @& &L, q ql q4$$&$& Richard A. Wells Assistant RAW/pe APPROVED: OPINION COMMITTEE: W. V. Geppert, Chairman Houghton Brownlee Gordon C. Cass Ben M. Harrison REVliZWED FOR THE ATTORNEY GENERAL., BY: Leonard Passrnorc